Why Citigroup’s $7 Billion Penalty Will Put Cash In Your Pocket

For those who find themselves constantly worrying about mortgage-backed securities, this week is bringing along some hopeful news. On Monday, word got out that Citigroup has agreed to pay a settlement to the tune of $7 billion. This marks an important turning point, being the biggest monetary agreement in history. Attorney General Eric H. Holder Jr. scolded the actions of Citigroup, stating that “the bank’s misconduct was egregious.”

While the news over this settlement is no doubt traveling quickly, many people find themselves in the dark regarding what it’s actually all about. Understanding the severity of the situation can help to make sense of why Citigroup ended up needing to agree to such a large settlement, and as confusing as it can be, the writing is on the wall regarding how the bank got itself into this situation.

Here are five things you need to know about the Citigroup settlement, all of which help to put things into perspective.

The Citigroup settlement includes a fine and consumer relief

Seven billion is an awful lot of money, and many people find themselves confused about where the money actually goes. In this particular situation, $4.5 billion of the settlement will go towards paying a fine for the bank’s misconduct, which contributed greatly to the economic collapse of 2008.

Where things really get interesting, however, are with the remaining $2.5 billion. This money will go towards “consumer relief,” which includes such things as mortgage modifications, rental housing financing, assistance with down payments and more. The $2.5 billion portion of the settlement is being referred to as “soft money,” as it will be divided in a number of ways to hit on as many aspects of consumer relief as possible. In this way, consumers will see positive benefits from the settlement.

This isn’t the first bank scandal

The misconduct of Citigroup may have contributed to one of the biggest financial issues the country has ever seen, but that doesn’t mean it’s anywhere near being the first of its kind. Indeed, scandals among banks are quite common. In an article from 2013, we took a look at some of the biggest scandals that happened during that year.

Take a closer look at some of these scandals, and it appears as if almost all the major banks found themselves in hot water in 2013. Wells Fargo, TD Bank, HSBC and JP Morgan Chase are all represented, and that’s not even the extent of it. For one reason or another, banks are constantly finding themselves getting into trouble, and it’s not as if people aren’t paying attention.

Consumer confidence is down

As one might expect, the fallout from the big bank scandals isn’t something that consumers are ignoring. Indeed, confidence among customers of big banks is falling. Many feel as if it’s impossible to trust a big bank, especially when it comes to mortgage-backed securities. For these individuals, investing quite a bit of hard earned money is nothing short of a huge risk that would preferably be avoided.

As a result, many people are finding themselves moving away from large banks, instead turning to online banks for loans and checking/savings accounts. Big banks are certainly hoping that consumer confidence is going to increase, but it’s quite likely that it will be years before that happens, if it does at all.

Citigroup’s mortgage business has shrunk significantly

Take a look at what occurred in 2008, and it shouldn’t be difficult to understand why Citigroup’s mortgage business has shrunk significantly over the course of the past few years. No longer does the bank find itself up near the top of the list in terms of being a trusted lender. Indeed, very few people feel good about doing business with Citigroup after what happened and are instead seeking loans and mortgages from other providers.

Citigroup has done a lot to try to turn this around as well, shifting rates and offering enticing deal to bring in new customers. In the end, however, their efforts have done little for helping to improve the bank’s reputation, and it’s unclear as to whether or not the settlement will have negative or positive effects on the bank’s mortgage business.

Investigations will continue for more banks

While the Citigroup settlement may be large and unprecedented, that’s not to say that there won’t be more coming up soon. The Department of Justice has hinted at continuing investigations into other banks, many of which are heavily used by Americans today. Scandals are happening all the time, and those which have been uncovered may be viewed as the tip of the iceberg.

As investigations continue, there’s no telling what the public will learn about how banks have been treating their money. One thing is for sure, however, and it’s that the government is not content with simply allowing banks to get away with misconduct. Investigations into other bank scandals will help to ensure that a situation such as that which entails Citigroup at the moment doesn’t occur again, even if could potentially be a long road before that happens. As more people move towards online banking, however, the shift towards scandal-free banking may come sooner than expected.

While it’s not easy to say what the future holds for big banks and their ability to get away with scandalous activity, it’s safe to assume that investigations will occur with more vigilance than in the past after a settlement such as this.

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